Decision: In considering the default provisions of a repurchase agreement between the two parties, David Richards J concluded that Special Administrators appointed under the Investment Bank Special Administration Regulations 2011 are not officers analogous to a Liquidator and an application under the Regulations for a Special Administration Order is not analogous to a petition for a winding-up.

The primary consequence of this decision in this case is that, although the appointment of the Special Administrators over MF Global UK Limited (“UK”) occurred before a Trustee was appointed over MF Global Inc (“Inc”), UK has control over establishing the sums due under the agreement. This makes quite a difference: the Special Administrators provisionally suggested Inc’s claim to be in the region of £37m, whereas with Inc as the non-defaulting party, its claim had been estimated at £287m.

Background: The Special Administrators sought directions regarding the default provisions of a Global Master Repurchase Agreement (“GMRA”) between UK and Inc in order to establish which was the defaulting party, which was necessary in order to establish the sums due under the GMRA.

Special Administrators were appointed over UK approximately three hours before a Trustee was appointed over Inc under the US’ Securities Investor Protection Act 1970. The GMRA defined default events as including “an Act of Insolvency” where the non-defaulting party serves a default notice. However, where the Act of Insolvency was “the presentation of a petition for winding-up or any analogous proceeding or the appointment of a liquidator or analogous officer”, no default notice was required. As no default notice was served when UK was placed into Special Administration, it was crucial to determine whether the Special Administration was analogous to the appointment of a Liquidator. The parties were agreed that the appointment of a Trustee over Inc was analogous to the appointment of a Liquidator, so if Special Administrators were not analogous to Liquidators, then Inc would be the defaulting party.

David Richards J stated that if the basic characteristics of liquidation – of bringing the business of the company to an end, realising its assets and distributing the proceeds amongst creditors – are not present, “it would in my judgment be impossible to say that the procedure was ‘analogous to’ liquidation as contemplated by the GMRA” (paragraph 33). He then compared and contrasted the powers and objectives of Special Administrators and Schedule B1 Administrators with those of Liquidators and, not surprisingly, pointed out that “an administration and other insolvency proceedings may result in the realisation of a company’s assets and a distribution of the proceeds among creditors, but the alternative of a rescue of the company as a going concern is at least one of the purposes or objectives of those proceedings. In those cases it is understandable that the non-Defaulting Party under the GMRA would wish to have an opportunity to wait and see how the proceedings develop before deciding whether to exercise its right to serve a notice declaring an event of default and thereby close out all outstanding transactions under the GMRA” (paragraph 52). David Richards J was not persuaded that Special Administrations were analogous to Liquidation even though, as Inc’s Counsel suggested, it would be very rare, if ever, that an investment bank that had been placed into Special Administration would be rescued – one of the alternatives of Objective 3 of the Special Administration process is to rescue the investment bank as a going concern and thus it is a process which is not analogous to Liquidation.